Sarbanes-Oxley Lawsuit Dismissed

A lawsuit challenging the constitutionality of Sarbanes-Oxley on appointment clause grounds was dismissed this week. I wrote about the suit in the April issue of Reason's "Citings" section, not yet online (subscribers already have it….). Here are comments from co-counsel the Competitive Enterprise Institute on the suit and the dismissal. The plaintiffs will appeal.

Comments

[Ken Shultz]

"The board wields great power over the businesses it regulates, and its regulations and mandates have produced costly and unintended consequences for publicly traded U.S. businesses, as well as for entrepreneurs and capital markets."

Just because something's constitutional doesn't mean it's smart--presumably, there are an infinite number of possible laws that are both idiotic and perfectly constitutional.

Let's hope Congress comes to its senses.

[jf]

Let's hope Congress comes to its senses.

ROTFLMAO!

Seriously, though has there been any Congress in your lifetime or mine (I've been around since Nixon was president) that has demonstrated any actual level of competency? It's all about each congressman passing laws to show how worthy they are to be re-elected.

[sage]

God I hate politicians.

Chris Gregoire signed an internet tax into law for WA state. Thanks a lot, twunt!

Here's twenty-five cents. Go downtown, and have a rat gnaw that thing off your face.

[Ken Shultz]

They don't have to demonstrate competency here.

...they could just cave in to special interests--Sarbanes-Oxley is the interest of how many publicly traded companies?

If you've been around since Nixon, then you've seen Congress cut the budget, cut marginal tax rates and give up debating China's MFN status--to name a few. ...Just because Congress is so terrible at so much doesn't mean it never gets anything right.

[political forum]

Why was it dismissed?

[Frunobulax]

because the feds were lucky (for a change)

from the link:

"In the decision, the court also said the plaintiffs didn't have standing to challenge that error, since the SEC Chairman had in fact voted with the other Commissioners for the people now sitting on the Board, making the error harmless to the plaintiffs. Congress had no reason to anticipate that the Chairman would do that, and thus it's only random chance that prevented the relevant part of Sarbanes-Oxley from being struck down."

http://www.cei.org/gencon/003,05832.cfm

[Christopher Monnier]

Knave! Surely there's some other angle of attack that can be pursued. Even Chuck Schumer wants to see it changed!

[joe]

A realistic, responsible effort to address the problems of the bill, while still addressing the systemic problems SarbOx addresses, would probably have a good chance of passing.

A return to Enronomics, not so much.

[Ray G]

A committee appointed by a commission. Great. . .

I didn't pick up on the technicality that supposedly killed the case, but it sounds pretty clear to me that the SO Act was poorly written and will probably eventually lose out.

Especially since it is doing so much harm. Schumer is even on the band wagon to kill it because it's causing the unthinkable; New York city is no longer the hands down king of the financial world, and it is because of the SO Act.

[Ken Shultz]

What systemic problems does SOX address, specifically, that aren't handled better by "economics"?

...not that economics isn't still at work.

I'm a little surprised, joe. I didn't think you'd think much of people using private equity to escape the government's clutches. Why should the best investments only be available to the elite?

...you're not suggesting that private equity firms should have to report as if they were public companies, are you?

[FinFangFoom]

SarBox will go. Its causing New York to lose a bunch of its IPOs and causing small and mid cap companies to go private (stop trading shares on stock markets).

[Dave W.]

Its causing New York to lose a bunch of its IPOs and causing small and mid cap companies to go private (stop trading shares on stock markets).

Free market at work. I see this as a feature, not a bug. oh, and, what joe said (I hope it is real joe).

[R C Dean]

So, Dave, you see it as a good thing that federal regulation is causing harm to US firms?

[Dave W.]

So, Dave, you see it as a good thing that federal regulation is causing harm to US firms?

I say that if you want less oversight, then organize your company in a way that no public investor trust is involved.

If you want even less oversight, then don't organize as a corporation at all.

Then companies with lots of oversight, medium oversight and no oversight can compete for investment dollars in a free investment dollar market.

I don't think there is a one size fits all solution here, but only a free market can give us an optimal balance between government oversight and limitations on liability in the tort, tax and (mostly) bankruptcy areas.

This is like consumer choice for investors and I do not see it as a bad thing at all.

Disclaimer: SarbOx is not all good and some tweaking is probably appropriate. I am just saying that different levels of oversight for companies with different degrees of limitations in their liability is an eminently sensible thing.

Disclaimer 2: SarbOx almost certainly negatively impacted my own career in a big way. It was much easier to convince people to give me money for my services before the law came into being. Nevertheless, I understand that what is good for the economy as a whole is not always good for me personally, at least not in the short run. Frankly, a lot of time with you RCD, I get the feeling that you think the best plan is whatever benefits you personally in the short run. I have a something of a distatste for that kind of politics / economics.

[Dave W.]

To put it a slightly different way: the US is better off when an Enron or a Tyco is organized as a UK firm or a Hong Kong firm, rather than a US firm. Those are the companies doing foreign ipo's now and good riddance to bad rubbish.

[joe]

Ken Schultz,

"What systemic problems does SOX address, specifically, that aren't handled better by "economics"?"

The interest management has in putting out inaccurate financial information to inflate stock prices, which is at odds with the interests of investors (both as investors, and as corporate owners).

[R C Dean]

I say that if you want less oversight, then organize your company in a way that no public investor trust is involved.

If you want even less oversight, then don't organize as a corporation at all.

And if you want even less oversight, don't go into business at all!

I am just saying that different levels of oversight for companies with different degrees of limitations in their liability is an eminently sensible thing.

Except that SarbOx oversight has nothing whatsoever to do with the limited liability of corporate investors. So I think this justification for SarbOx is pretty much of a non sequitur.

[Dave W.]

Except that SarbOx oversight has nothing whatsoever to do with the limited liability of corporate investors.

Sure it does. Public stock exchanges give companies easier access to a big fund of limited liability funding. if a corporation doesn't need access to that funding, then they can choose not to list, and thereby avoid SarbOx. However, if they do want to leverage the power of that additional margin of funding, then it makes sense to provide an additional margin of oversight so that that money insn't used to trample on the rights of creditors (eg, pensioners), tort victims and the tax paying public.

[R C Dean]

Dave, you're missing the point.

SarbOx does nothing to affect one way or the other limited liability of investors. It doesn't apply at all to corporations that are not publicly traded large firms. Saying its justified because of the limited liability afforded by the corporate form is a non sequitur.

SarbOx has everything to do with publicly traded firms. As far as I know, it would apply to a general partnership if said partnership were listed on a public exchange. None are, because you would have to be completely insane to invest in a large firm without limited liability protections, but that's a different issue.